Japan Declares They'll Kill Deflation THIS YEAR With The Loosest Monetary Policy You've Ever Seen

Japan's finance minister has arbitrarily declared that he wants Japan to defeat deflation by the end of 2010.

This is opposition to what the Bank of Japan had intended, given that they were planning on beating inflation over the course of a few years.

Thus Japan's finance minister is ratcheting up the pressure on the Bank of Japan to loosen monetary policy even more than is already the case. One imagines this could require the loosest monetary policy in Japanese history.

The prospect of ending Japanese deflation by 2010, through excessively loose and potentially hazardous policy, will be making Yen bulls nervous.

Another cabinet minister went further, saying the central bank should directly underwrite public debt to finance government spending, although he added that monetary policy alone would not fix deflation.

"Escaping deflation is difficult so we won't see an immediate improvement such as in several months. But taking two to three years would be too long," Finance Minister Naoto Kan told a lower house financial committee on Monday.

"Hopefully, we want Japan to see prices turn positive by the end of this year," he said, adding that he hopes the BOJ will work with the government in overcoming deflation.

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Shizuka Kamei, Japan's outspoken banking minister, called for even more drastic action, urging the BOJ to directly underwrite public debt, a move the BOJ is strongly opposed to for fear of triggering runaway inflation in the long term.

"I suggest the BOJ directly underwrite government bonds to help the government come up with financial resources," Kamei told the same parliamentary committee.

Deflation is easy to beat if you have no regard for the consequences of your policy, but very difficult to beat without risking a self-reinforcing cycle of high inflation. Political pressure in Japan makes the yen's future highly uncertain. Japan could be stuck with deflation for years, or it could easily fall into a inflationary spiral, all depending on how the country tackles its growing debt problem.